Stock Chartist

Commentary and recommendations about the stock market, sectors and individual stocks from a chartists perspective. Observations are based on the belief that "at their core, fundamentals are subjective but momentum is fact."

Main menu

Post navigation

August 27th, 2009

You haven’t seen a new post for several days because …. well, there’s just not much new to write about. Sure, if you listen to CNBC or Bloomberg, you’ll hear much about “climbing a wall of worry” or “less than 20% of stock newsletters being bearish while over 50% are bullish [no, they didn’t explain what happened to the remaining 30% and, yes, they thought this was a clear contrarian indication of an immanent correction].

We hear from Nuriel Roubini that we’re facing a double-dip recession and from Doug Kass that the market has “likely topped”. Some commentators claim that when more than 85% of stocks are above their 200-day moving average the market is getting into extremely overbought territory, historically, the precursor of either a major correction or a bear market.

Finally, there are the Elliott Wavers led by Prechter who claim that a “Primary Wave 3” down will soon get underway because “the DJIA has now retraced a Fibonacci 38.2% of the 2007-2009 plunge in stock prices, meeting a minimum threshold for the completion of the Primary Wave 2 rebound”. One Elliottician blogger also believes that

“the next wave down will likely entail the collapse of Western Civilization. Given the precipice of history at which the world stands, I’m hurrying to complete my thesis regarding the creative insanity of man. There’s a possibility of global nuclear war by mid-October according to my analysis.”

I include all this not because I believe or even understand this gobbledygoock but because I want you to know that I understand your confusion and anxiety. Many of you (those who hadn’t read this blog in 2008 and remained “buy-and-holders” until it was way too late) were badly hurt financially and are afraid of further losses. You just don’t know what to do with your money. As I see it, though, there’s really nothing to do right now.

Remember “This Could Be the Start of Something Bigger and Better” from April 27. Most of the conversation back then was about a suckers’ rally and the market about to fall below the March 9 lows. Fearlessly (or carelessly), I included a spreadsheet of stocks that looked like they had some nice bottom reversal patterns (the chart for CIEN included in that post is interactive and updated to today’s close; CIEN closed on April 27 at 10.83, today’s was 13.32, or 23% higher).

Today feels similar. True, the market is now up more than 50% from the low but remember (and do I need to continue reminding you) how quick and deep the devastation actually was this past September-March. We’re approaching the one year anniversary of the Financial Crash Bear Market’s true beginning on August 28, 2008, when the S&P 500 closed at 1301; today it’s 1028.

I believe today’s chart actually looks beautiful and all the momentum indicators still point to the recovery continuing:

Here’s what I think are important in this chart:

Market isn’t out of the woods yet when it comes to that Traders’ Remorse Zone correction. A retreat to the 950-960 level seems reasonable and still expected. If it does retreat, there will again be calls of a head-and-shoulder top or some other reversal pattern, the same as was the case in May-July.

Three of the 4 moving averages have all turned up and, so long as the Index stays above them, they will soon start crossing over the slow, long-term 300-day moving average.

Note where the Index was one year ago.

Note also the continued upward slope to the OBV indicating that volume is higher on days when the market up ticks vs. the days when it closes down.

Finally and significantly, there’s a positive divergence between the Index and the OBV. OBV is higher today than it was at the beginning of last September while price today is significantly lower.

The reason I continue going back to the market is because my eyes are glued to my trading platform for much of the day. Various daily, minute by minute charts (.SPX and a couple of stocks) are being updated real time, along with the real time value of all stocks in my portfolio and the total value. My second monitor shows the Telechart historical charts of any of up to 6000 charts.

What I know is that everything moves in tandem. I hope that my portfolio will increase a larger percentage than the S&P 500 but, unfortunately on down days, it will also probably decline further. Individual stocks may buck the trend but rarely for very long.

So, having some belief about the market’s immediate direction is critical to knowing what to do with individual stocks (and not losing my nerve or sanity). No one can predict the future but if we have some notion of what to expect from the market over the next few days or weeks, we’ll have more confidence in the decisions we want to or have to make.

The market might bounce around in the traders’ remorse zone but we won’t panic unless it retreats below the neckline of the long-term inverted head-and-shoulder. Likewise, once it clears the upper boundary of that zone, there’s a good chance it will make a mad dash to the next congestion area of 1180-1250.

No one knows which it will be so the suspense builds like a spring being coilded tighter and tighter waiting for a break ….. on the upside we hope.

Subscribe below or click here to learn more about help for navigating turbulent markets.

On a technical basis, what would need to occur for you to change your bias?

Jesse Caris

well, I think you gave us some good things to watch here honestly. But,I think you sum it up pretty well at the end when you say "to the upside we hope".

-1% GDP in the 2nd quarter even with all the money the FED printed, all the stimulus & bailout, cash for clunkers ect. How much $ do they have to print and distribute to get positive GDP? Here in Maryland I'm hearing on the radio this week that the counties and state are passing new large budget cuts and lots of firing. Income tax is down drastically and falling because even the jobs that people are finding are at much lower salaries than they had previously.

But, you have HOPE and that's got to mean something. There's a lot of money on the sidelines I've heard, I just haven't figured out who has all this money. Most people I know are just trying to keep there heads above water hoping they'll be able to keep there job.

bill

It has been a while from what I recall since you've shown a chart of your MTI indicator with all the "buy" and "sell" points shown.

I wonder if you could update us on this hopfully with a simple explanation of what determines the "buy" points and "sell" points for you when using this indicator.

Thanks for taking the time to produce such a great blog.

Minnesotalee

Don't fret!!! Besides my P&F charts that indicate 1295 as a price objective (PO), look at other and old technical indications like the major indicies: DOW 30, S&P 500, QQQ, $TRANS, and $UTIL on either the Guru's charts or the P&F charts or the daily financial $ vs time charts you'll see all of the four major indicies are technically bullish. I know there is this wall-of-worry, but remember with this amount of upward momentum reflected in all these tech charts, you can't come up with a BEARish spin. NO U-TURN possible.

Minnesotalee

There has been a discussion here about county/state budget cuts as a result of lower tax revenue. So be it. This is the other side of the coin that no one other than conservatives supports. We need them and the Federal government to spend less. We can't afford the tax increases to support the liberal (sorry progressive) idealogy.

Jesse Caris

lee, i think we can agree on something here. the government spending less money is a good thing! I was just illustrating that even the government is now letting people go. A few months ago, they were the only ones hiring.

Guru

The MTI has consistently be in an all-in position ever since the Index crossed above the 200-day moving average on June 1. Except for few days since when the Index dropped below that MA, the MTI has signaled a green light.

Anonymous

The market still waiting for labor day & 50 MA??

Guru

Sure looks it today, doesn't it? Pretty boring until a new burst of momentum develops. But staying flat is better than a deep correction, I say.

Manoj

Hi GuruYour Bull recovery II list contain lots of REITs. Out of them which onesyou personally like most at this time?ThanksManoj

Guru

Manoj,

Right now, I'm opting for the more volatile stocks. Therefore, among REITs, I currently own KFN, MAC and CBL. If I were adding new ones, I think I'd go with JJL, SLG, GRT and CBG and FCEA.

Another strategy is to select from among those with high dividends (although I would include only those that pay cash dividends, not stock dividends).